MCDONALD'S SIGNS TWO-YEAR DEAL WITH DREAMWORKS

'Shrek 3' Characters to Be Integrated Into Food Chain's Marketing

LOS ANGELES -- McDonald’s Corp., in the final stretch of an exclusive deal with the Walt Disney Co., today announced a two-year marketing and promotional relationship with one of the studio’s fiercest competitors, DreamWorks Animation SKG.

The deal enables McDonald's to integrate 'Shrek' characters into its year-round marketing; executives suggested Shrek himself might be used in the company's health-oriented marketing campaigns.

The deal will kick off with a promotion around DreamWorks’ much-anticipated Shrek 3 in summer 2007, shortly after the 10-year alliance with Disney is complete.

Still in talks with Disney

Meanwhile, McDonald’s is still in talks with Disney about how the two companies might proceed in a less binding marketing relationship, one that McDonald’s franchisees often complained was lopsided toward Disney. The timing of the DreamWorks announcement shows a re-invigorated, soon-to-be-emancipated McDonald’s flexing its marketing might.

The DreamWorks deal gives McDonald’s exclusive worldwide promotional rights to DreamWorks Animation’s two films each year, with an option to renew the agreement at the end of 2008. DreamWorks will be able to solicit partnerships for its animated films in categories other than restaurants. And McDonald’s is not bound exclusively to DreamWorks Animation, and can link with other studios and entertainment companies, including DreamWorks SKG, which produces live-action films.

The deal, in effect, shuts out other fast-food chains from DreamWorks Animation movies but not those of the main DreamWorks studio.

Films included in the deal are Shrek 3, slated for release in May 2007, Bee Movie for November 2007 and Kung Fu Panda in summer 2008. A fourth film has yet to be announced.

“They share our commitment to quality, innovation and fun,” said Mike Roberts, McDonald’s president and chief operating officer. “They have successfully reached moviegoers around the world. At McDonald's we’re continually looking for ways to be more relevant.”

“No company in the world is more prestigious than McDonald’s,” said Jeffrey Katzenberg, CEO of DreamWorks Animation. “They’re the No. 1 brand. They understand the importance of creating a terrific customer experience.”

Integrating cartoon icons into restaurants

The deal between McDonald’s and DreamWorks could integrate the studio’s characters into the global restaurant chain in a way that wasn’t possible under the Disney agreement. Franchisees had long complained that they wanted more flexibility in using Disney’s iconic animated characters in their year-round marketing. The promotions instead were focused on new releases, with the chain having access to characters for short and specific windows.

Without giving details, executives said during today's announcement that DreamWorks icons like Shrek could be part of McDonald’s ongoing active lifestyle campaign. Mr. Katzenberg joked that Shrek has been known to say, “It’s good to be green,” which could dovetail nicely with McDonald’s new healthier-for-you positioning.

“I’m not sure what he meant, but he has said that in the past,” Mr. Katzenberg said. “I’ll have to ask him about it.”

“DreamWorks is enthused about communicating to children and adults this important message,” he said.

Using Shrek for balanced lifestyle

Larry Light, McDonald's executive vice president and chief global marketing officer, hinted at using Shrek for the “It’s what I eat and what I do” theme for balanced lifestyles. McDonald’s is looking to expand a current promotional twist that puts green-colored forks in its salads, executives close to the situation said.

DreamWorks does not intend to animate Ronald McDonald in its movies, Mr. Katzenberg said, but will serve as a resource for McDonald’s in its quest to make the spokescharacter more entertaining. The restaurant icon is expected to share screen time with DreamWorks characters in advertising campaigns, especially around the new computer-generated films that the studio will release each year.

The deal also includes merchandising opportunities that could meld DreamWorks and McDonald’s characters, another impossibility under the restaurant’s alliance with Disney.

Mr. Light said he expects the deal with DreamWorks to last longer than the initial two years, but that the chain would not sign a long-term deal as it did with Disney. Because planning for entertainment-linked Happy Meals must happen at least a year in advance, McDonald’s already is well into planning for 2007, he said.

No more 10-year deals

“We want to be more nimble and more flexible,” he said. “Ten years is a very long time. I don’t anticipate we will be making 10-year deals in the future with anybody.”

He said the marketer “wasn’t prepared” to discuss any other issues relating to the Disney deal. They wouldn’t disclose financial terms or specific promotional activities citing competitive reasons.

Executives said there wouldn’t be any overlap between the promotional windows for the Disney or DreamWorks films.

“We’re calling it ‘open door’ flexibility, and good ideas don’t care where they come from,” Mr. Light said. “We will not have and don’t have an exclusive relationship with anybody but instead we will have an open door policy looking ahead in the future. We haven’t agreed to a relationship with anybody other than DreamWorks. DreamWorks is exclusive to us.”